SC lauds repealed MGNREGA as ‘neither freebie nor exploitation’

Why in the News

The Supreme Court has described the repealed Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) as a “salutary scheme” that was neither a freebie nor an exploitation of rural workers. A three judge Bench made the observation. It was hearing a petition seeking directions to the government to pay delayed wages under that Act along with compensation. Civil rights groups have meanwhile claimed that the successor law has produced a 50 per cent fall in employment generation. What is now contested is whether a guarantee of work rests on an enforceable right or on a Directive Principle that Parliament may redesign at will.

What did the Court say about the repealed employment guarantee law?

1. The Bench recorded an unqualified endorsement: The Chief Justice of India, heading a three judge Bench, orally observed that the repealed Act was a good and effective scheme.
2. The reach was part of the praise: The observation noted that the scheme did a wonderful job in rural areas and was implemented across the whole country.
3. It rejected both political labels attached to the scheme: The Bench held that the scheme was neither a freebie nor exploitation, which answers the charge that guaranteed public work is a handout and the charge that it is underpaid labour.
4. The endorsement carries no operative effect: These were oral observations in a hearing, not a finding recorded in a judgment, so they bind nothing.

What has changed under the successor law?

1. A new statute has replaced the 2005 Act: The Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) Act, 2025, or VB-G RAM G Act, is now the governing law for rural employment guarantee.
2. Guaranteed days have gone up: The entitlement rises from 100 days to 125 days of work per household each year.
3. Employment generated has gone down: Civil rights groups claim a 50 per cent decline in employment generation under the new law, despite the higher entitlement.
4. The design has moved from demand to allocation: The new law reflects a shift from a demand driven, rights based framework to a centrally controlled model.
5. The funding split has been rewritten: The Centre to State ratio moves from 90:10 to 60:40, which raises the funding burden on States threefold.

What did the petition ask the Court to do?

1. Payment of arrears with compensation: The petition sought directions for the government to pay wages already delayed under the repealed Act, together with compensation for the delay.
2. A test of the wage floor: The Court was urged to examine whether a law may prescribe minimum wages lower than the threshold determined by the State concerned.
3. Elevation of the work guarantee: The petition asked that the statutory guarantee of rural work be raised to the status of a fundamental right under Article 21.
4. The fiscal claim behind the numbers: It was submitted that States must now find nearly half the funds under the new law, that employment has halved, and that States do not have the money.

Can a statutory guarantee of work be raised to a fundamental right?

1. The Bench located the right in Part IV: A judge on the Bench observed that the Constitution does not make the right to work a fundamental right, and that it is more a democratic aspiration under the Directive Principles of State Policy.
2. The consequence of that placement: To achieve that aspiration the state formulates a policy providing work at a graded, compensatory level. That is a matter of legislative choice rather than of enforceable entitlement.
3. The petitioner’s route runs through dignity: It was argued that the right to lead a dignified life is part of Article 21, that a dignified life requires employment at minimum wages, and that anything below minimum wages amounts to forced labour.
4. The question the Bench put remains open: Whether a Directive Principle worked out through a statute should be treated on par with Article 21 was posed from the Bench and not answered.

Why did the Bench doubt a judicially fixed wage floor?

1. A floor can shrink the work available: A judge on the Bench noted that mandating a minimum wage threshold might risk reducing the number of employment opportunities offered.
2. Wages track local conditions: The Chief Justice of India observed that wages are usually linked to prevailing local conditions rather than to a single national figure.
3. The two positions are not reconcilable within the scheme: A wage set by dignity produces one number, a wage set by local labour market conditions produces another, and only a legislature can choose between them.
4. The judicial instrument is blunt here: A court can strike down a wage as unconstitutional, but it cannot fund the difference, which is why the Bench treated the question as a fiscal one.

How did the Court dispose of the matter?

1. The old law is no longer the right frame: A judge on the Bench stated that the issues raised must be examined afresh in the light of the new law rather than under the repealed Act.
2. The petition was disposed of: The Court disposed of the present petition rather than deciding the questions it raised.
3. Liberty was granted to start again: The petitioner was asked to file a fresh petition, which resets the challenge against the successor statute.
4. The practical effect is delay: Both questions the petition raised survive, but only in a proceeding that has yet to be filed.

Challenges to the rural employment guarantee framework

1. A demand driven scheme collapses if funds are capped: Where the budget is fixed in advance, field staff suppress the registration of work demand rather than record an unmet entitlement. Eg. Work demand under the earlier scheme was routinely recorded only after funds were released for the block. Fix. Make the budget line for the guarantee an open ended charge that is revised at the supplementary stage against recorded demand.
2. Delayed wages convert a guarantee into a loan from the worker: Payment beyond the statutory window pushes households into informal borrowing at the exact moment the scheme is meant to protect them. Eg. A large share of wage payments under the earlier scheme was released beyond the fifteen day statutory window in successive financial years. Fix. Automate the delay compensation payment through the same payment system that releases the wage, without requiring a claim.
3. A higher State share transfers the risk to the weakest States: Poorer States with the largest demand for guaranteed work are least able to fund a 40 per cent share. Eg. States facing the highest rural distress also carry the highest ratio of committed expenditure to revenue. Fix. Apply a differentiated matching ratio linked to a State’s own revenue capacity rather than a uniform national split.
4. Asset quality is weakly monitored: Works are selected for their ability to absorb labour rather than for durable value, so the assets created decay within seasons. Eg. Earthen works taken up before the monsoon are frequently washed out before they are measured. Fix. Require every work above a threshold cost to carry a technical sanction and a geotagged completion audit.
5. Social audit is the design safeguard and the weakest link: The Gram Sabha audit is meant to catch fake muster rolls, but audit units are staffed and funded by the same administration they examine. Eg. Social audit units in several States operate with a fraction of their sanctioned staff. Fix. Fund social audit units directly from the central share and place their reporting line under the State Accountant General.
6. Women’s participation depends on facilities that are rarely provided: Creche facilities and worksite shade are statutory entitlements that are treated as optional. Eg. Worksites routinely operate without the creche required where more than five children under six are present. Fix. Make release of the next tranche of administrative expenditure conditional on verified worksite facility compliance.

Conclusion

The Court’s endorsement of the repealed Act is a comment on record and nothing more, and the Bench made clear that the live questions must now be argued against the successor statute rather than the one it replaced. The petition was accordingly disposed of with liberty to file afresh, so both questions it raised remain undecided. The next milestone is the filing of that fresh petition. That petition will test the constitutional status of the work guarantee and the legality of a wage below a State determined minimum against the VB-G RAM G Act for the first time.

“[2011] Among the following who are eligible to benefit from the “Mahatma Gandhi National Rural Employment Guarantee Act”?

(a) Adult members of only the scheduled caste and scheduled tribe households

(b) Adult members of below poverty line (BPL) households

(c) Adult members of households of all backward communities

(d) Adult members of any household